Microsoft's revenue and profit for the first quarter of its 2013 financial year were down year on year, with the company attributing the weaker performance to slowdowns in the PC market in the run up to Windows 8's availability.

Revenue was down eight percent to $16.008 billion. Operating income dropped 26 percent to $5.308 billion, and earnings per share fell 22 percent to $0.53. Part of the weak performance is attributed revenue for Windows 8 and Office 2013 that's deferred until the software actually ships (October 26 and the first quarter of calendar year 2013, respectively). With that revenue included, revenue was flat, at $17.364 billion, operating income down seven percent to $6.664 billion, and earnings per share down four percent to $0.65.

The Windows and Windows Live Division bore the brunt of the PC slowdown. Revenue was down nine percent year-on-year to $4.411 billion. Of this, $3.244 billion was booked this quarter; $1.167 billion is deferred until delivery of Windows 8. This is at the top end of Microsoft's deferral estimate of $1.0-$1.2 billion last quarter. Operating income was accordingly down 50 percent to $1.646 billion.

Although volume license revenue grew by double digits, the drop in transactional revenue—which is to say, people buying new PCs with Windows preinstalled—is a reflection of the broader malaise in the PC market. Microsoft says this is in anticipation of the release of Windows 8. The company notes Windows 8 pre-sales revenue, the $1.167 billion that hasn't been booked yet, is up 40 percent relative to Windows 7. This suggests there's some amount of pent up demand.

Microsoft Business Division also suffered a little from the decline in the PC market. Its revenue was up just one percent to $5.691 billion. Again the division has some deferrals; $5.502 billion was booked this quarter, $189 million is deferred until Office 2013 is delivered. Operating income was down two percent to $3.646 billion. Multi-year enterprise licensing revenue grew by eight percent, Dynamics CRM revenue was up by more than 30 percent, and Exchange, SharePoint, and Lync together grew by double digits.

Server and Tools, which is less dependent on the broader PC market, had a much stronger quarter. Revenue was up eight percent to $4.552 billion, and operating income up 12 percent to $1,748 million. Multi-year licensing revenue grew 19 percent, SQL Server Premium revenue was up more than 20 percent, and the System Center range also increased revenue by more than 20 percent.

The perennially loss-making Online Services Division also showed improvement. Revenue was up almost nine percent to $697 million, and the operating loss was down 29 percent, to $364 million. Online advertising revenue grew by 15 percent, and Bing increased its US market share by 1.2 percent year on year.

Entertainment and Devices Division saw a 1 percent decrease in revenue to $1.946 billion, with operating income down sharply; a 94 percent drop, to just $19 million. In the quarter some 1.7 million Xbox consoles were sold, down 29 percent on the same time period last year. This still leads the US market, with a 49 percent share in September.

Looking forward, next quarter will start to see the recognition of the deferred Windows 8 revenue, with Microsoft expecting that $800 million of the deferrals will be booked. The remainder will be booked throughout the second half of its FY 2013. Conversely, the company expects to defer about $850-$950 million of Office revenue as a result of Office 2013 pre-sales and upgrade offers. Multi-year Microsoft Business Division revenue (60 percent of total) is expected to grow in the low double digits; transactional revenue by low single digits.

Server and Tools expects product revenue (80 percent of total) to grow by high single digits, and enterprise services revenue by low double digits. Online Services Division anticipates continued revenue growth similar to that of first quarter.

Entertainment and Devices Division expects a revenue decline of the low teens. Second quarter is historically the division's biggest, due to Christmas. The soft market is likely a reflection of Xbox 360's relative age. In spite of this, whole fiscal year revenue is still expected to be up on 2012.

40 Reader Comments

Is there any evidence that a non-negligble percentage of the market is putting off PC purchases until Windows 8 is available? If not, then this may look more like a permanent change rather than a blip.

They are not competing anymore in a market they dominate. Between Android Devices and this new Chrome Book, as well as All of Apple's portfolio, MS will need a bit to get traction

Yes. This is why MS want to build their own hardware. They are hoping to emulate Apple model in case they lose marketshare. Apple don't need to dominate to capture most of profits in smartphone and tablet industry.

I'd rather they didn't combine the Entertainment division With the Devices division. I'd still prefer to see the breakout.

The problem is that the Devices division is much smaller, but has consistently made a very big profit. The Entertainment division while several times larger in sales, is continuing to make a loss. But by concealing that loss With the Devices profits, we can't see how that is going. I suspect though, from the drop in the combined income, which was huge, the Entertainment side must have sustained large losses.

I wonder how this will turn out in the future for the Entertainment section. Estimates are that Microsoft has now lost over $9 billion over the years there, and that includes revenue from games licensing, movies, Tv shows, music, etc, all which are assumed to be profitable, even if only slightly.

With a very long time between new console releases from Microsoft and Sony, I wonder if that business is going away entirely. Sales for the Wii U aren't expected to be all that great either.

With a very long time between new console releases from Microsoft and Sony, I wonder if that business is going away entirely. Sales for the Wii U aren't expected to be all that great either.

The games industry works a lot like the film industry these days: you're expected to lose money on most titles and make up for it with a couple huge hits per year. In Microsoft's case that would be Halo 4. Halo 3 made something like $300 million on its opening week and $1 billion altogether, so it's likely that this one will be similar.

Doesn't seem like a sustainable way to do business to me, but that's the way it is. So I wouldn't worry about the health of E&D.

They are not competing anymore in a market they dominate. Between Android Devices and this new Chrome Book, as well as All of Apple's portfolio, MS will need a bit to get traction

Are you serious? You think anyone at Microsoft is taking the "Chromebook" seriously? No one takes that insanely niche market seriously, much less Microsoft.

They're more worried about Android and iOS than they are about some glorified browser-based OS.

The glorified browser-based OS allows for multiple resizable windows on the screen at the same time. Something that the metro interface doesn't allow for.

Give me a glorified browser interface any day over a glorified phone interface on my desktop/laptop.

First off, you can have two "windows" side by side, so you're wrong in that regard. Second, it's a laptop form factor and as such, is competing against Microsoft laptops. The absolutely predominantly vast majority (read: all) of them all run Intel or AMD CPUs, and thus all run full desktop operating systems.

You're being intentionally obstinate or flat-out lying to try and make an argument for the Chromebook where none exists. I'm not sure which. Perhaps a combination of the two.

The glorified browser-based OS allows for multiple resizable windows on the screen at the same time. Something that the metro interface doesn't allow for.

Give me a glorified browser interface any day over a glorified phone interface on my desktop/laptop.

Windows + D and you too can have multiple re-sizable windows on the screen at the same time too on your desktop or laptop.

Here's the thing about Windows 8. You can actually use it day to day with almost NEVER seeing Metro. I use it mostly as a very customizable Start screen. Most of the stuff I launch on a regular basis is pinned to my task bar just like it was in Windows 7.

The first PC that I bought also made phone calls. That's not something weird. I think that most desktop PC can make phone calls, and so do laptops until they started selling them without a modem. What's weird is that the new cellphones are also PCs.

With a very long time between new console releases from Microsoft and Sony, I wonder if that business is going away entirely. Sales for the Wii U aren't expected to be all that great either.

The games industry works a lot like the film industry these days: you're expected to lose money on most titles and make up for it with a couple huge hits per year. In Microsoft's case that would be Halo 4. Halo 3 made something like $300 million on its opening week and $1 billion altogether, so it's likely that this one will be similar.

Doesn't seem like a sustainable way to do business to me, but that's the way it is. So I wouldn't worry about the health of E&D.

But Microsoft,s yearly losses continue to mount from the Entertainment portion of the combined division. Individual wins don't matter. The loss from Xbox sales more than makes up for all the profits from everything else .

The fact that Surface preorder is sold out tells me that FUD about Metro will not live long

It's not sold out. Just the $499 version is sold out, so you can still order one, if you're serious.

The problem with "sold out" statements is that they mean nothing without a number. I remember when Palm and Sprint were bragging about how the Pre was sold out "everywhere, just everywhere!" But in fact, they just sold 50,000 the first week. We found that out later. So, hopefully, they will release some pre-sales numbers shortly.

Am I the only one confused by the dates? The first quarter of 2013 hasn't even started yet. I'm left wondering if this is joke that is going over my head or a weird reporting thing that only makes sense to those in the USA.

Am I the only one confused by the dates? The first quarter of 2013 hasn't even started yet. I'm left wondering if this is joke that is going over my head or a weird reporting thing that only makes sense to those in the USA.

Microsoft's fiscal year is July 1 to June 30, do FY13 started last July and the first quarter just ended.

Here is something that seems connected. Maybe some of our arsOpinionators can cough a guess or two.

The video gaming business is in a consistent downward trend. Has been for several years (2009+). One view is the age of the current hardware consoles is most of the reason why. A portable device, phone or tablet, works well enough for many newer gamers and the dedicated are tired of playing on six to seven year old equipment with graphics that are about a year or two older then that.

Does this relate to the PC down turn as well? Do we need consistent Windows refreshes to keep the PC hardware going, much like the inverse of the video game business? Or is this just an ongoing ripple effect of the economy? Price of gasoline > $4/gal.

I realize I am an outlier in that I typically keep a machine forever and only upgrade when there is a significant processor improvement. Not being a windows user normally, except for a recently built W7 box in response to the ancient game consoles I own, PS2, PS3, Xbox360. Which is why I am asking non-outliers the question.

What are you going to do with them/it?Windows/Xbox games? C#Enterprise software? Java and its variations.iOS games? Objective CAndroid games? Java and its version DarWhatTheHeckIsItCalledSoftware engineer? C, C++, Java and lots of scripting.

Just want to be a programmer or just a better programmer? Flip a coin. Then learn the other one as well.

What are you going to do with them/it?Windows/Xbox games? C#Enterprise software? Java and its variations.iOS games? Objective CAndroid games? Java and its version DarWhatTheHeckIsItCalledSoftware engineer? C, C++, Java and lots of scripting.

Just want to be a programmer or just a better programmer? Flip a coin. Then learn the other one as well.

C++ and enough C# or obj-C to write a wrapper around some system calls, leaving you in a lovely C++ world.

Here's the thing about Windows 8. You can actually use it day to day with almost NEVER seeing Metro. I use it mostly as a very customizable Start screen. Most of the stuff I launch on a regular basis is pinned to my task bar just like it was in Windows 7.

It depends on what you refer to when you say Metro. The start screen can be avoided easily, but there are bits of Metro here and there throughout the system. Try adding a new user account and you will see Metro. Insert a new media and you will see Metro. Install a new browser and you will get a Metro dialog asking you which application to use to "open this kind of link (http)" - (by the way, really nice wording there, Microsoft, very friendly and approachable because every one knows that browsing the web involves using something called HTTP). Access the network icon on the notification area and you will see Metro (the fact that they didn't do the same thing to the volume control and opted instead for leaving the desktop version intact baffles me). I could go on all day.

The extent to which all this bothers the user is, admittedly, incredibly subjective. Personally, I guess could live with it if I had to thanks to Start8 (if I needed a new machine and Windows 8 came on it, for example), but there is now way in hell I'm paying to get it willingly.

What are you going to do with them/it?Windows/Xbox games? C#Enterprise software? Java and its variations.iOS games? Objective CAndroid games? Java and its version DarWhatTheHeckIsItCalledSoftware engineer? C, C++, Java and lots of scripting.

Just want to be a programmer or just a better programmer? Flip a coin. Then learn the other one as well.

The glorified browser-based OS allows for multiple resizable windows on the screen at the same time. Something that the metro interface doesn't allow for.

Give me a glorified browser interface any day over a glorified phone interface on my desktop/laptop.

Windows + D and you too can have multiple re-sizable windows on the screen at the same time too on your desktop or laptop.

Here's the thing about Windows 8. You can actually use it day to day with almost NEVER seeing Metro. I use it mostly as a very customizable Start screen. Most of the stuff I launch on a regular basis is pinned to my task bar just like it was in Windows 7.

The FUD associated with Metro is just amazing.

He/She is clearly comparing Windows RT to Chromium, which is actually the best comparison, based on prices (low), chipset (slow ARM) and capability (lightweight OS). So you attacked a strawman.

So, yes, you're right, but they're right, too. Chromium is probably more usable for 'legacy' users than MS's new Modern interface style. Will that be the case for the generation growing up only with mobile? I don't know.

Is it relevant to MS's earnings this quarter? Absolutely not.

But I was reflecting on the new ARM-based Chromebook, as niche as it is, and the hardware world right now reminds me of when cable TV exploded. You have your major networks everyone knows: Macbooks, Wintel pcs, ios and android, and then you have all your 'cable channels', winrt, chromium, kindle fire, ereaders, bbx, ipod, game consoles, wp7/8, etc. MS, as the dominant 'network' is set for a decline, though I still think their business stuff is too profitable for it to matter much. They're the new IBM.

The glorified browser-based OS allows for multiple resizable windows on the screen at the same time. Something that the metro interface doesn't allow for.

Give me a glorified browser interface any day over a glorified phone interface on my desktop/laptop.

Windows + D and you too can have multiple re-sizable windows on the screen at the same time too on your desktop or laptop.

Here's the thing about Windows 8. You can actually use it day to day with almost NEVER seeing Metro. I use it mostly as a very customizable Start screen. Most of the stuff I launch on a regular basis is pinned to my task bar just like it was in Windows 7.

The FUD associated with Metro is just amazing.

He/She is clearly comparing Windows RT to Chromium, which is actually the best comparison, based on prices (low), chipset (slow ARM) and capability (lightweight OS). So you attacked a strawman.

So, yes, you're right, but they're right, too. Chromium is probably more usable for 'legacy' users than MS's new Modern interface style. Will that be the case for the generation growing up only with mobile? I don't know.

Perhaps if they had compared Windows RT, but when you talk about an OS running on a desktop/laptop they are clearly not talking about WinRT but rather Windows 8.

I know someone has to say this almost every time Windows 8 gets mentioned, but use the damn OS. I have been using it for the better half of a year now starting with the Dev preview. I've come to realise something in that time;

The Start screen is strictly superior to the start menu.

Windows 8's UI is simply put, better designed than Windows 7's is. Even for desktop use. I'm sure most of you know that feeling you get when you have to work on someone's ancient XP machine or Mac OS and every task is an annoyance to accomplish? After using Windows 8, using Windows 7 on my other machines will do that to me. Windows 8 is more powerful and more customisable, and even the much maligned start screen is a step forward.

Metro apps? I don't know. I've never used them. I don't even like the term app. Stop being lazy and just type application already. I've never even seen one past my first flirtations when I installed the OS. They're completely irrelevant to desktop use. Yes, they're there if you want them, but their existence doesn't in any way affect normal use of the OS.

I know Microsoft will be getting a few thousand dollars from me when Win 8 and the Surface Pro comes out, and I know at least three other people in my close group of friends who are on the same page.

People will still buy computers, but they won't be upgrading them as often, due to other devices they will be buying.

5 years ago, most people just had a computer and used that for all their needs. Today, they have smartphones and are now also getting tablets.

What this does is cause them to delay a computer upgrade, as it is not the only computing device they use. So now instead of buying a new computer every 4 years, maybe its every 5, with tablet mixed in there as well.

The problem for MS is that there are many other choices for those devices, which are not running Windows.

They have 90%+ of the computer market, but a small percentage of the device market. I am certain that they will capture a larger percentage of the device market, but the big question is will that offset the losses from the decline in the computer market.

The other thing to consider is the price they get for each copy of Windows sold on a device. I have a feeling that the profit per device will be dropping. So they may sell more copies of Windows, but they get less for each copy.

They are not competing anymore in a market they dominate. Between Android Devices and this new Chrome Book, as well as All of Apple's portfolio, MS will need a bit to get traction

Are you serious? You think anyone at Microsoft is taking the "Chromebook" seriously? No one takes that insanely niche market seriously, much less Microsoft.

They're more worried about Android and iOS than they are about some glorified browser-based OS.

Considering that Android and iOS about to pass the volume of Windows on the desktop, smartphones and tablets have to be cutting into PC sales in a big way. Especially, when we consider individuals or families that previous had more than one PC.

I have to wonder if the PC market is still a growth market.

Microsoft has little potential for growth if they cannot break into the smartphone or tablet market.

Here's the thing about Windows 8. You can actually use it day to day with almost NEVER seeing Metro. I use it mostly as a very customizable Start screen. Most of the stuff I launch on a regular basis is pinned to my task bar just like it was in Windows 7.

The FUD associated with Metro is just amazing.

And, this FUD appears mostly to be industry-generated. Probably will be an entirely different story when the actual product ships, and real-world experience builds up.

Kind of reminds me of the reactions from some when Mac moved from OS 9 to OS X. And, I think, for some of the same reasons--people are often highly reluctant to change, and the necessary work involved with it. Some developers probably don't want to invest the time to update, and probably will not be in business for the long-term...

First, they are dropping the bottom out of the price of WIndows 8 x86.Then, they are selling their own laptop dinguses... The Microsoft Windows Surfaces... at what cannot be great margins.Then, they *literally* give away one of their profit centers by giving away Office with every copy of Windows 8 RT.Then, they start giving away Zetabytes of free online disk space and bandwidth with their new not-making-much-money products.

So where are they going to make profits? Enterprise licenses of Windows 8? (*wince*)

I do *not* look forward to seeing Microsoft's demise (like i did in the 90s, admittedly)... but i can't help but wonder how all of this is supposed to keep them going.

I don't know many people that have even heard about Windows 8 at this point.

Edit: seriously, I get minned for an honest observation? I wasn't trolling. Ask around outside your tech circles guys!

Yes, with the addition of the thumbs up/thumbs down and the ignore icon the comments have been reduced to having to follow the same pathetic rules as our political races: It is more important to tell people what they want to hear than to tell them the truth. Say something unpopular (or even that gets misinterpreted as unpopular), and you'll face the tyranny of the masses. Say something inane, but popular and you're thumbs up. Say enough things that run contrary to the conventional wisdom and some people will render you invisible.

I guess there are some people that are so thin-skinned that the appearance of contrary words on a tech website is more than they can bare and they feel the need to make those unpleasant words go away. Personally, I won't use the ignore feature on anybody even if I find them to be the biggest troll around. I WANT to read things I disagree with. Sometimes I will change my mind, and other times I won't but I don't want to miss anything. Geez, its just words on a tech site.

And now I suppose I'll suffer the ravages of being "minned" and rendered invisible. Sad.

First off, you can have two "windows" side by side, so you're wrong in that regard. Second, it's a laptop form factor and as such, is competing against Microsoft laptops. The absolutely predominantly vast majority (read: all) of them all run Intel or AMD CPUs, and thus all run full desktop operating systems.

You're being intentionally obstinate or flat-out lying to try and make an argument for the Chromebook where none exists. I'm not sure which. Perhaps a combination of the two.

frostdillicus wrote:

Windows + D and you too can have multiple re-sizable windows on the screen at the same time too on your desktop or laptop.

Here's the thing about Windows 8. You can actually use it day to day with almost NEVER seeing Metro. I use it mostly as a very customizable Start screen. Most of the stuff I launch on a regular basis is pinned to my task bar just like it was in Windows 7.

The FUD associated with Metro is just amazing.

1. Two windows side by side in a layout chosen for you does not compare to resizable windows. One of the most fundamental features of any windowing system, which has been around since before Xerox labs' very first mouse demo.

2. It isn't a matter of FUD. Anyone arguing that the "desktop mode" is the saving grace of windows 8 requires a naivety beyond comprehension. Microsoft has made it abundantly clear that their focus is on metro. The desktop is there because they had no choice but to include it. They have made a point of getting rid of it in arm builds.

3. "You can actually use it day to day without almost NEVER seeing Metro." I'm thinking this double negative was some kind of Freudian slip. Either that, you've never actually used windows 8, or the only application you use is a web browser. Also, see point 2.